State Bank of Pakistan in its circular Ref. no. BPRD/BA & CPD/006315/20 advised Banks/DFI/MFB to suspend distribution of profits by way of declaring dividend in any manner (cash or stocks) for the quarter ending March 31, 2020 and half year ending June, 2020. This will conserve the capital and would enhance the lending and loss absorption capacity of the banks. Previously, the central bank reduced the capital conservation buffer by 100bps and relaxed the criteria for restructuring of Loans to ensure a continuous flow of credit to support the economic activity.
The board of director of the bank/DFI/MFB, however, can approach State Bank of Pakistan with sound justification if they deem it necessary to declare the dividend in institution specific circumstances.
We believe that Pakistan’s commercial banks are well capitalized with average Capital Adequacy ratio (CAR) of 17.5% against regulatory requirement of 11.5%. Pakistan’s Banks have enough capacity to absorb any shock arising from surge in Non-performing loans as economy slows down. Moreover, due to conservative lending strategy of most of the banks, the quantum of Nonperforming loans are expected to remain low. We believe, the bank would pay dividend of 1Q-2Q2020 in 3Q2020 as the restriction would be lifted and economy stabilized.
We expect, high dividend paying stock such as MCB and ABL to maintain their annual dividends as they are well capitalized with CAR of 18.9% and 21.7% respectively. Moreover, both of them have a very conservative lending strategy with ADRs of 44.7% and 46.2% respectively